Govt’s ‘overwhelming’ involvement in economy major reason behind stagnant growth: PIDE study

ISLAMABAD: A study has revealed that the government’s overwhelming involvement in the national economy is one of the major reasons behind the stagnant growth of the national economy, further recommending a broader discussion on an immediate cessation of absolute policies on import substitution and export promotion.

The study carried out by the Pakistan Institute of Development Economics (PIDE), “The State of Commerce in Pakistan – International and Domestic” released here on Wednesday said that Pakistan’s commerce and industry must develop as part of the global value chain.

While highlighting the government’s involvement in economic activities, it said that it was active in over 70 percent economy-related activities from trade and markets, stifling market development and growth.

The report further said that the cost of regulation, estimated at over 60 percent of the GDP, particularly affects segments larger than 50 percent of the GDP, turning regulation agencies into a burgeoning industry in Pakistan.

The report said that Pakistan’s current approach is to fragment out the markets and segment ourselves from the global value chain. The report explores the challenges and opportunities shaping the landscape of Pakistan’s commerce sector while shedding light on the current state of commerce in the country.

In his opening remarks, Dr Nadeemul Haque, Vice Chancellor (VC) of PIDE said that the institute has developed this report for the Ministry of Commerce and Industries, and to explore all facets of internal and external trade in Pakistan.

The primary objective is to gain a profound understanding of markets, growth and international and domestic trade. He emphasised that despite the sector being vibrant it faces challenges stemming from the various governments’ indifference, regulatory problems, and various other problems.

The PIDE has presented proposals to the government for deregulation, specifically targeting markets such as real estate, and improvements in tax documentation to foster the creation of large multinational businesses. However, the government’s preoccupation with borrowing and reliance on lenders to decide policy remains a significant challenge.

According to the report, there is a systemic failure to diversify across manufacturing, exports, and domestic markets. Notably, the import substitution policy, exemplified by the Mobile Phone Manufacturing Policy, 2020, has fallen short of its targets. Despite the significant contribution of domestic commerce to formal and informal employment and GDP, this sector has been historically overlooked in policymaking, with the first domestic commerce policy formulated only in 2021.

On the international trade front, the report highlights obstacles such as high tariff cascading, minimal progress in moving up the export product value chain, and limited destination diversification. Urban design, zoning regulations, and city planning negatively impact businesses in Pakistan, particularly in domestic commerce.

The prevalence of the “seth” culture, characterized by family-owned businesses dominating the stock market, raises concerns about market efficiency. Furthermore, the challenges faced by the real estate and construction sectors are highlighted, with a dominance of plots and limited commercial real estate negatively impacting domestic commerce. Deputy Chairman of the Planning Commission Dr Mohammad Jehanzeb Khan attended the event as the chief guest, while Special Secretary of the Ministry of Commerce Sarah Saeed participated as a special guest.

In his address, Dr Khan underscored the paramount role undertaken by PIDE and appreciated it for spearheading cutting-edge research crucial for the nation’s immediate requirements.

He said a fundamental tenet of effective governance was the government’s responsibility to generate revenue and ensure its judicious utilisation through enhanced public expenditure. Emphasizing the need for improvement in public expenditure, he said, “We are committed to optimizing the impact of public funds for the betterment of our society and fostering sustained economic advancement.”

In her remarks, Sarah Saeed commended PIDE’s efforts in highlighting the importance of domestic commerce in Pakistan. She said the Ministry of Commerce acknowledged the significance of domestic commerce in Pakistan, as rightly emphasized and consistently advocated by PIDE.

Consequently, she said the ministry had established a separate domestic commerce department. While domestic commerce has become a provincial subject after the 18th Constitutional amendment, she said, adding coordination and collaboration among the federal and provincial governments were essential to set the direction of policies supporting the external trade sector and domestic commerce.

Copyright Business Recorder, 2023